Innovative Revenue Growth


Request Prompt:

A member is interested in understanding what some new or innovative revenue growth and diversification strategies are that are in use in local governments (understanding that some may be state-specific). But would like information on types and examples of various approaches outside of general sales tax, property tax, bonds, program/enterprise fees, and development fees (examples like levies, districts, etc). Also, how are communities going about approaching revenue diversification (to reduce reliance on one type of revenue and its possible economic vulnerability)? 

Summary of Findings: 

Unique Revenue Approaches: 

Landlord Permit Fees 

  • Summary 
  • Requires landlords to acquire a permit before renting out their property. These fees collected can be added to the general fund to address other budgetary constraints and fund other revenue generating activities. 
  • Benefits and Feasibility 
  • “Landlord permit fees are a way to raise revenue and keep housing safe.” 
  • Example(s) 
  • “Gainesville instituted a landlord permit fee applied to landowners who wish to rent out their property. The revenue from the fee goes into the general fund, so it helps the overall budget, but it also pays for more code enforcement officers. These code enforcement officers can issue citations that in turn raise revenue when landlords are in violation and can fund further enforcement. These fees fall on the wealthier segments of Gainesville and primarily benefit the poorest residents.” Source 
  • Challenges 
  • Implementation of the new fee system can prove challenging, especially when the landlord does not reside in the community. 
  • Lack of transparency with what the fee is being used for can also generate backlash from community members and landlords specifically. 


  • Summary 
  • Restructures solid waste services from a flat-fee to a usage based system. The usage system would bill customers based on either the number of can pickups in a given month or the number of trash bags collected (using a prepaid bag or prepaid tag system). If the capabilities exist, the service can also be charged based on weight. Pay-As-You-Throw is useful in making solid waste a self-sustaining service while also promoting environmentally conscious behaviors and increasing recycling usage. 
  • Benefits and Feasibility 
  • If waste collection is burdening the general fund of the municipality, a PAYT system would transform solid waste collection into a self-sustaining service and would free up funds for other priorities.  
  • By paying a variable rate based on how much garbage a user generates, the city can incentivize the environmental goal of waste reduction.  
  • The waste collection can subsidize the expansion of recycling services. Source 
  • Examples 
  • Challenges 
  • Capital investment is usually required to jumpstart the program.  
  • No new research regarding PAYT has been produced since China’s “National Sword” policy was introduced, as a result the true benefits may no longer be viable. 

Sidewalk Utility Fees 

  • Summary 
  • A highly controversial initiative, but one community has begun creating and designating sidewalk districts based on foot traffic. Property owners are then charged a fee based on parcel size within that sidewalk district. The result is that sidewalks become a public utility and can be billed to make sidewalks and paths self-sustaining entities.  
  • Benefits and Feasibility 
  • Makes sidewalk costs fair and predictable for property owners.  
  • Makes better, faster sidewalk repairs.  
  • Includes tax-exempt property owners in sidewalk financing.  
  • Treats sidewalks as a shared resource and helps build more sidewalks. 
  • Examples 
  • Ithaca 
  • “The City of Ithaca devised a creative solution to the problem by creating sidewalk districts, the first innovation of its kind in the country. Ithaca divided the city into five areas based on foot traffic and charged by parcel size, essentially turning sidewalks into a public utility. High traffic districts – specifically the downtown area and areas near Ithaca’s campus – get charged a higher fee and each property is charged by parcel size, so large land owners pay the most.” Source1 
  • Challenges 
  • Significant community pushback seen in communities that have floated the idea. 
  • Pre-emption and challenges from the state legislature is a significant barrier to implementation. 
  • Accurately assessing which foot traffic for certain areas may prove challenging for some communities. 

Income Based Fees and Fines 

  • Summary 
  • While the logistic of income-based fines and fees are challenging to organize, some international communities have developed the capability to enforce fines as a proportion of an individual’s income. This results in more equitable punishments as well as generally improved revenue. The major challenge for municipalities is that they generally cannot access an individual’s income records and must rely on subpoenaed documents, testimony, and a judge’s opinion. Additionally, some states may impose limits on the dollar amount of a fine or fee. 
  • Benefits and Feasibility 
  • “The task of estimating a reasonably appropriate unit value for calculation of the day fine (in any such case where a fine was seen as an appropriate penalty choice) should present no great difficulty for an experienced criminal court judge.”  
  • Examples 
  • “Developing the latest—and largest—model for progressive transit pricing, the Seattle area has instituted a two-tiered pricing system for transit across the metropolitan area, with one rate for most riders and a lower rate for individuals making less than 200% of the poverty line.” 
  • New York MTA 
  • “During the first phase of the program New York City will provide discounted fare MetroCards to approximately 30,000 working residents who qualify for cash assistance benefits. Participants will be able to purchase discounted seven-day or 30-day values during the first phase of the program’s rollout.” 
  • “The second phase of the program, set to begin in April 2020, will expand the eligibility pool to include approximately 130,000 working New Yorkers receiving Supplemental Nutrition Assistance Program (SNAP) benefits. At this point, the city plans to have an online system up and running that will allow eligible participants to apply online and have their discounted MetroCard mailed directly to their home.” Source 
  • Challenges 
  • One of the foremost challenges is that municipalities do not have access to IRS information and data and thus cannot accurately assess an individual's earnings. 
  • Some states put dollar amount caps on fees and fines that can be assessed to an individual. 
  • Despite reassurance from legal scholars, an expensive fine could be challenged as a violation of the 8th Amendment of the United States Constitution and could create a drawn-out legal battle. 

Stormwater Fees 

  • Summary 
  • A Parcel/Impervious-Area based fee charges properties based on the square footage of impervious surface area present. The result is that individual homeowners often pay less while commercial and industrial businesses pay more to support the stormwater services a municipality offers. The challenge for a municipality though is having accurate figures and assessments of impervious surface areas for every property.  
  • Benefits and Feasibility 
  • Charges individuals equitably based on how much stormwater runoff they generate. 
  • Breaks stormwater runoff costs away from the general fund and creates earmarked funds to address runoff issues. 
  • Examples 
  • Challenges 
  • Setting proper fee amounts to anticipate associated costs is incredibly challenging for a municipality. 
  • Municipalities with limited resources may struggle to gather the information necessary to assess how much impervious surface area every property has. 

Revenue Diversifications Strategies: 

Trend of Revenue Diversification 

  • Consensus 
  • While each state and municipality will consistently have unique circumstances, the national data reveals several striking trends. First, that taxes and tax-based revenue will continue to shrink as a source of funding for local governments in order to fight off the volatility of these revenue streams. State aid and intergovernmental shared revenue is not expected to vary significantly from its current point. The most significant change is expected to be an increase in user fees and charges. These diversification trends are likely to produce a more stable and secure stream of revenue for municipalities. 
  • Supporting Material 
  • “The mobility of retail sales present challenges to central cities. More generally, the volatility of income and sales taxes is relatively high, making it difficult to use these sources to fund local services. State aid tends to be drawn from state income and sales taxes which have the same problems. Revenue from the federal government is a potential source. However, most federal aid funds are not disbursed directly to local governments and when they are they often come with “strings” attached in the form of mandated service levels. Even the property tax which is thought to be one of the most stable revenue sources is showing alarming weakness in some locations. User fees are perhaps the only relatively reliable source, but their political acceptability is threatened when constituents are hard-pressed.” 
  • “First, it is possible that state aid may have crested. As the largest portion of local revenues and a large portion of state spending, it is natural that this source may recede and particularly so as there has been growing pressure on state budgets. A second trend that bears continued monitoring is whether the property tax will continue its recent increase. Its unpopularity makes it unlikely that there will be a major increase; if so it would be a major reversal in the long-term trend. Third, the reliance on charges continues to increase and there is every reason to expect this will continue. Continued resistance to taxes combined with a demand for good local services makes non-tax revenue a logical solution to the budget puzzle. Also, the improvement in electronic technology has made it easier to administer charges.” 

Resulting Impact of Diversification 

  • Consensus 
  • Municipalities with greater diversity of revenue streams are less likely to be vulnerable during economic downturns than less revenue diverse municipalities. Additionally, diversified revenue produces more accurate budgeting practices and leads to fewer rebudgeting needs. And all else being equal, municipalities with more diversified revenue streams are more likely to produce a revenue surplus. 
  • Supporting Material 
  • “A diversified revenue system may make rebudgeting less necessary. While some revenue surpluses are the result of intentionally conservative estimates, the adjustments due to estimate errors and economic fluctuations may be addressed with a more diversified revenue stream. Diversification’s influence on rebudgeting is germane to the issue of revenue adequacy during time of economic downturn or fiscal distress.” 

Approaches to Diversification: 

City Revenue Optimization Strategy 

  • Summary 
  • To identify and implement new revenue and diversification strategies, cities should look inward to understand the feasibility of these strategies not only fiscally but socially. A City Revenue Optimization Strategy process would help to identify new and diverse revenue streams, their implementation feasibility, and help cities select the most strategic streams of revenue for them. 
  • Process 
  • “To identify the relevant revenue streams and which interventions to apply, cities should determine the relevant data and revenue baselines. This preparatory work generally consists of collecting the relevant data and developing the current revenue baseline.” To help gauge the social acceptance prior to implementation, “cities could consider conducting a citizen sentiment survey to understand how receptive residents might be to specific changes in fee structures and charges.” 
  • “Next, cities should perform a thorough gap analysis to define the potential revenue impact for any given stream. This exercise involves analyzing the city’s revenue baseline to determine current revenue generation across all streams and then comparing revenue streams against benchmarks for peer cities to identify any gaps. With initial adjustments for relevance and size of potential revenue impact, cities can select the most promising streams as revenue generators.” 
  • “Following the clear identification of interventions and opportunities, cities can set priorities based on social acceptance, economic impact, and ease of implementation. These three dimensions can be further broken down into factors for evaluation. Cities should then establish a revenue committee that adopts a strategic perspective to assess the impact of revenue levers and understand the interlocking factors.”  


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